ountry was given investment-grade status in April, because of their earnings growth outlook, Morgan Stanley said. Brazil was upgraded to "overweight" from "equal-weight" by Morgan Stanley's emerging-markets strategists, meaning investors should hold more of the shares than are represented in the MSCI Emerging Markets Index.
The South American country joins Taiwan and Russia among the brokerage's favorite markets.
"Brazil's average valuation" within Morgan Stanley's emerging-market universe "has improved whilst earnings growth expectations remain among the strongest in the asset class," analysts led by London-based Jonathan Garner wrote in a note to clients dated Thursday. They expect 25 percent profit growth for Brazilian companies this year.
Brazil's Bovespa Index rose as much as 15 percent this year before scaling back the gains on May 21. Investors who flocked to the country lured by its commodity businesses and Standard & Poor's upgrade of the local government debt on April 30 have trimmed investments amid a global sell-off in equity markets.
As a result, Brazilian equities are valued at 11.75 times their estimated earnings, compared with a price of 14.15 times in May, according to Bloomberg data. The Bovespa has fallen 5.9 percent in 2008.
The brokerage raised its recommendations for India, Mexico and Turkey to "equal-weight," while downgrading Chile, Egypt and the Philippines to "underweight." Israel was lowered to "equal-weight," the note said.
S&P on April 30 raised Brazil's long-term foreign currency debt rating to BBB- from BB+. Morgan Stanley is the second-biggest U.S. securities firm by market value.
